2001 Special Article - Venture Capital, 1999-2000This article was published in Finance, Australia 2000-01 on 25/10/2001.

INTRODUCTION

Venture capital is high risk capital directed towards new or young businesses with prospects of rapid growth and high rates of return. The aim of this type of investment is to accelerate the growth of these businesses. Venture capital can also be used for existing businesses for the purposes of developing a new product or process to revitalise its activities.

Considerable interest and growth in venture capital markets and changes in tax regimes for venture capital investment announced as part of the 1999 Federal budget has prompted the ABS to undertake the Venture Capital Survey, 1999-2000. This survey was undertaken with the encouragement and assistance of the Department of Industry, Science and Resources and other Commonwealth agencies. The survey is being repeated for 2000-01, with results expected to be published in late 2001 or early 2002.

The survey has presented a significant challenge to the ABS and data providers. Concepts employed have been synthesised from terms used in the industry. Frequently, the same form of words has different nuances and accounting treatments; valuation practices can differ; methods of operation may follow different patterns; there are some differences between industry practices and the criteria used to evaluate projects applying for government assistance. The result is that the term 'venture capital' and associated data concepts have a range of meanings. In this survey, ABS has given self-description weight over administratively based definitions. The survey concepts were developed by the ABS in consultation with users, industry bodies and data providers.

The survey, of venture capital investment vehicles resident in Australia, collected standard accounting data (balance sheet, income and expenditure) of the vehicle, funding (commitments, drawdowns, return on capital) and investee company characteristics.

Funds and sources of funds

The following table shows the number of investment vehicles which reported receiving funds from each type of source of fund. The totals are not the sum of the individual components as investment vehicles are able to source funds from more than one source. Committed capital refers to the overall capital of the fund. Drawdowns refer to the amount of capital that has been called on by investors and, in most cases, passed on to investee companies or used for management expenses. The 'not stated' category has been used for those companies that were unable to provide source details as their investors are shareholders.

During 1999-2000, investors committed $5.0 billion to venture capital investment vehicles. The largest source of funds in terms of commitments was resident superannuation funds with 36% of commitments followed by other non-residents with 20%. The largest source of funds in terms of drawdowns was resident superannuation funds with 34% followed by other residents with 13%. Resident banks and private trading enterprises each accounted for 8% of the drawdown value.

S1.1 SOURCE OF FUNDS OF INVESTMENT VEHICLES-1999-2000

Commitments by investors

Drawdowns from investors

Uncalled commitments

As at 30 June

Active
investment
vehicles
no.

Value
$m

Active
investment
vehicles
no.

Value
$m

Value
$m

Residents

Banks

19

340

18

229

111

General government

6

120

5

60

61

Public trading enterprises

10

125

10

63

62

Private trading enterprises

29

358

28

221

136

Superannuation funds

51

1 783

49

895

888

Life insurance offices

9

183

9

92

91

Trusts

12

88

12

50

38

Funds of funds

20

336

19

183

153

Other

56

418

56

343

75

Not stated(a)

18

199

18

199

-

Total residents

(b)

3 950

(b)

2 335

1 615

Non-residents

Superannuation funds

6

24

6

21

3

Other

27

1 010

25

293

717

Total non-residents

(b)

1 034

(b)

314

720

Total

127

4 984

127

2 649

2 335

(a) Companies in which investors are shareholders. (b) Investment vehicles can access funds from more than one source, therefore, the totals are not the sum of the individual component. Source: Managed Funds, Australia (Cat. no. 5655.0).

Asset and liabilities

The value of investment in venture capital investment vehicles was $2.8 billion at 30 June 2000. Unlisted equity, mainly investment in companies, at $1.4 billion was the major asset of investment vehicles.

(a) ABS has imputed a domestic balance sheet for cases where a local agent of a global venture capital fund manages, but does not legally own, the investment.(b) Investment vehicles employ a variety of valuation methods.(c) Net asset is not a reflection of the total capital that has been drawndown. Amounts drawndown are also used for management expenses of the investee company.Source: Managed Funds, Australia (Cat. no. 5655.0).

Financial operations

The following tables present venture capital project investment by investment vehicle. During the year, the investment portfolio increased $596 million. New projects added $684 million, followed by unrealised gains at $245 million and follow-on investments at $165 million, offset by exits and decreases in the value of initial public offers of $353 million and trade sales of $137 million. Write-offs recorded during this period were investments entered into in previous periods.

Management and performance fees were the major items of expenditure during the year, accounting for 36% and 34% of total expenditure respectively. Management fees are charged regardless of results, whereas performance fees reflect the profitability of investments. Other outlays relate mainly to new investments: legal, accounting, registration, etc. Income is mainly dividend and trust distributions. The following tables present income and expenditure, during the year, of investment vehicles.

S1.4 SELECTED INCOME AND EXPENDITURE OF INVESTMENT VEHICLES- 1999-2000

Investment vehicles
no.

Value
$m

Expenditure

Management fees

76

57

Performance fees

10

52

Interest payments

11

3

Other outlays

67

42

Income

Interest receipts

70

34

Other inflows

44

148

Source: Managed Funds, Australia (Cat. no. 5655.0).

Investment levels by industry and location

A total of 127 investment vehicles reported $2,480 million investment in 651 investee companies, operating in a wide range of industries and activities. Finance and property investee companies accounted for the largest share of venture capital investment at $560 million (23%), followed by manufacturing and utilities investee companies at $526 million (21%). The following table presents data on the level of venture capital investment by industry.

S1.5 INVESTEE COMPANIES BY INDUSTRY, LEVELS-1999-2000

Investee companies

Value

As at 30 June

no.

% share

$m

% share

Agriculture and mining

84

12.9

167

6.7

Manufacturing and utilities

149

22.9

526

21.2

Construction

25

3.8

305

12.3

Trade and accommodation

66

10.1

212

8.5

Transport and communication

106

16.3

373

15.0

Finance and property

142

21.8

560

22.6

Government and community services

79

12.2

338

13.6

Total

651

100

2 480

100

Source: Managed Funds, Australia (Cat. no. 5655.0).

The majority of investee companies were located in New South Wales and Victoria, with 245 investee companies (37%) located in New South Wales and 204 (31%) in Victoria. These accounted for 47% and 24% of total investment respectively. Investee companies located abroad accounted for 11% of total investment.

During 1999-2000, a total of $974 million was invested in 298 investee companies. Finance and property investee companies accounted for the largest share of venture capital investment at $262 million (27%) followed by manufacturing and utilities investee companies at $230 million (24%). The following table presents data on the level of venture capital investment by industry.

S1.7 NEW INVESTMENT, BY INDUSTRY-1999-2000

Investee companies

Value

no.

% share

$m

% share

Value at 30 June

Agriculture and mining

29

9.7

59

6.0

Manufacturing and utilities

55

18.4

230

23.6

Construction

30

10.1

57

5.9

Trade and accommodation

6

2.0

22

2.3

Transport and communication

56

18.8

173

17.8

Finance and property

89

29.9

262

26.9

Government and community services

33

11.1

171

17.5

Total

298

100.0

974

100.0

Source: Managed Funds, Australia (Cat. no. 5655.0).

The activity which attracted the most venture capital investment during 1999-2000 was IT, media, electronics and communications with $884 million (36%) followed by manufacturing and transport with $686 million (28%) and retail, services and real estate with $87 million (20%). The following table presents venture capital investment during the year by type of activity.

S1.8 NEW INVESTMENT, BY ACTIVITY-1999-2000

Investee companies

Value

no.

% share

$m

% share

Value at 30 June

Manufacturing and transport

53

17.8

135

13.9

IT, media, electronic and communications

145

48.7

542

55.6

Retail, services and real estate

61

20.5

109

11.2

Biotech, pharmaceuticals and health

32

10.7

92

9.4

Energy and utilities

7

2.3

96

9.9

Total

298

100.0

974

100.0

Source: Managed Funds, Australia (Cat. no. 5655.0).

Investment activity can occur at various stages of the establishment and operations of a business and include: seed (in business less than 18 months); early (in business less than 30 months); expansion; late (new product or product improvement); turnaround (financing during times of operational or financial difficulty); and buyout. During 1999-2000, investment activity occurred predominantly in the expansion stage with a total value of $406 million (42%) followed by the early stage or pilot stage with $243 million (25%).

S1.9 NEW INVESTMENT, BY STAGE-1999-2000

Investee companies

Value

no.

% share

$m

% share

Value at 30 June

Seed

30

10.1

33

3.4

Early

109

36.6

243

24.9

Expansion

109

36.6

406

41.6

Late

22

7.4

63

6.5

Turnaround

7

2.3

42

4.3

Buyouts/buyins

15

5.0

186

19.1

Unknown

6

2.0

1

0.0

Total

298

100.0

974

100.0

Source: Managed Funds, Australia (Cat. no. 5655.0).

Further information

Further information about theses venture capital statistics can be obtained from the ABS website or contact Tom Coogan on Canberra 02 6252 6976, or email tom.coogan@abs.gov.au.

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